Globally, there has been great progress on financial inclusion. Between 2011 and 2014, the number of adults without a formal bank account – the unbanked – dropped by 20 percent to 2 billion.
Yet, there is a significant gender gap in account ownership, savings, credit, and payments behaviour. In 2014, 58 percent of women worldwide have an account, compared to 65 percent of men. The gap is particularly large in South Asia, where only 37 percent of women have accounts.
On the occasion of this year’s International Women’s Day, #UNCDFExpertsChat spoke to Feisal Hussain about the promise of accelerating women’s access to regulated financial services.
Feisal Hussein is the Senior Regional Technical Advisor for Financial Inclusion at the UN Capital Development Fund and manages SHIFT (Shaping Inclusive Finance Transformations), a regional financial market development and women’s economic empowerment programme across the ASEAN region.
Prior to joining the UN Capital Development Fund, Feisal ran a development consultancy in the UK, designing and evaluating livelihood projects and advising some of the largest donors, not-for-profit organizations, and microfinance institutions. In addition, Feisal designed DFID’s largest Innovation Challenge Fund, called Shiree, and chaired its first Independent Assessment Panel of Experts in Bangladesh.
Before this, he spent 5-years designing and project-managing economic livelihood projects globally for ActionAid International, and he served for four years as ActionAid’s country director in Bangladesh. Before his role as Country Director for ActionAid, he spent several years designing and managing microfinance programmes both at the retail and industry levels.
Before joining the development sector, Feisal worked in the City of London in the late 1980s in consumer lending, remittance and payments, and wealth management of high net-worth individuals.
Feisal holds a Masters in Development from the University of Leeds and Bachelors in Business from Middlesex University.
#UNCDFExpertsChat: What is the development challenge you are trying to solve? How does UNCDF’s SHIFT programme solve that challenge?
Feisal Hussein: The Shaping Inclusive Finance Transformations (SHIFT) programme believes that all individuals and enterprises have a right to low cost, well-regulated, formal financial services. However, throughout the ASEAN region, formal financial services are not reaching low-income, rural and/or marginalized populations. In Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV), for example, less than 20 per cent of people use formal financial services.
Technological progress has allowed some outreach (particularly in Cambodia), but generally the financial sectors in CLMV are small, bank-led, high-cost, fragmented and lacking in business models to effectively serve the poor. For the poor, informal services like moneylenders and unregulated remittance providers fill the gaps that the formal sector has not reached. Furthermore, while the formal access frontier has been successfully extended in some areas, usage remains low due to a lack of appropriate financial solutions and low financial literacy.
Additionally, for the region’s enterprises, there is a missing middle of funding between traditional microfinance loans to microenterprises and bank finance to larger enterprises. Less than 20 per cent of firms use banks to finance investments, while financing of working capital is even lower. Given the importance of Micro, Small and Medium Enterprises (MSMEs) in the wider economy, this funding gap has profound impact on investment, employment and growth. Closing the gap in a sustainable way requires developing incentives for microfinance institutions to upscale and banks to downscale, while also encouraging alternative funding sources, such as venture capital and impact investors, to enter the market.
Based on these challenges, the SHIFT programme aims to assist 6 million low-income consumers and small and growing enterprises to use well-regulated and affordable financial services by 2020. SHIFT’s approach to enable the inclusion of low-income people and businesses in the formal real economy will contribute to increased income and employment, reduction of vulnerability to shocks, and poverty reduction. SHIFT works in four strategic areas:
- Through SHIFT’s Challenge Fund, the programme supports financial service providers to develop new prototypes and bring to scale viable business models that serve low-income consumers, micro-entrepreneurs, and small and medium businesses, especially women within these markets, in the ASEAN frontier economies.
- SHIFT produces, consolidates and communicates data and information on supply, demand, and regulation in financial markets to strengthen the evidence base and investment decisions of providers, regulators and policy makers, specifically targeted towards low-income consumers, micro-entrepreneurs, and small and medium business, especially women within these markets.
- Through SHIFT’s work with data, the programme works to inform and influence policy to enable financial markets to be more responsive to the wider development priorities of governments and its people.
- SHIFT is also working in the area of learning and capacity building, to support the incubation of enterprises as well as incentivize the development of EdTech learning solutions for professionals in financial institutions to improve productivity and professionalism.
#UNCDFExpertsChat: What is the last mile financing model of SHIFT? How does it build public/private partnerships?
Feisal Hussein: Given the scale of exclusion and value of investment needed to extend last mile financial services, SHIFT believes the sustainable solution is to catalyse the private sector to develop innovative business models and extend investments. SHIFT’s next-generation Challenge Fund offers competitive matching grants to catalyse investments by private sector financial institutions by altering their risk-adjusted returns on investments. The fund specifically seeks to co-fund proposals that address key market gaps to financial access and incentivizes financial institutions and other market actors in expanding services/products to un-banked clients. The SHIFT Challenge Fund also offers an innovative flexible risk-sharing structure to enable other public and private investors to co-invest in deals originating from the Challenge Fund’s discovery process with loans, equity, and guarantee.
#UNCDFExpertsChat: How does SHIFT support the achievement of the SDGs?
Feisal Hussein: SHIFT aims to contribute to poverty reduction (SDG 1) by systematically influencing market changes, to create a financial market with an increased number, diversity and affordability of financial products and services, which specifically meet the needs of low-income customers, and enterprises in CLMV countries. The programme not only focuses on increased access, but also focuses on ensuring usage of such products and services. Evidence supports that a direct relationships can be seen between increased financial access and usage, and increased income and employment, leading to reductions in vulnerability to shocks and poverty.
SHIFT’s approach to financial inclusion stretches across sectors and stakeholders. The SHIFT challenge fund allows for thematic focused windows in which SHIFT is already working to incentivize last mile financing in areas such as women’s economic participation (SDG 5), agriculture (SDG 2), etc. Innovative business models, which SHIFT aims to support, also includes extending insurance products and services to support issues such as health (SDG 3) and resilience (e.g. micro insurance for agriculture).
The SHIFT programme works directly with policy makers and regulators to support and influence the adoption and roll out of national financial inclusion policies and roadmaps. SHIFT’s policy work promotes inclusive (with a particular focus on women and MSMEs) and sustainable economic growth (SDG 8).
Overall, the SHIFT programme works to reduce inequality at the national level and at a regional level (SDG 10) through financial inclusion. In addition to SHIFT’s policy work at the national level, SHIFT acts as a technical advisor to the ASEAN Working Committee on Financial Inclusion which is comprised of policy makers from Central Banks of each ASEAN country. As a technical advisor, SHIFT provides informed data, policy research (currently focused on the area of remittances), and supports capacity building of the Working Committees members.
#UNCDFExpertsChat: The SDGs have a strong focus on leaving no one behind. How does SHIFT reach poor communities and under-served regions in LDCs? How does it make sure that it reaches women and vulnerable groups?
Feisal Hussein: SHIFT’s Challenge Fund works to extend last mile financing particularly to women and MSMEs. SHIFT works to catalyse and crowding in investors in women’s economic empowerment through its challenge fund.
The first set of deals made under the SHIFT Challenge Fund generated more than $3.2m of new investments in clean energy access solutions through 5 innovative business models with only a 10 per cent grant from SHIFT.
A second Challenge Fund window was launched on 22 February 2016. It specifically focuses on “Fostering innovative business models for women’s financial inclusion.” It will provide funding to financial service providers and other enterprises to develop or scale-up innovative and sustainable business models and cross-sector partnerships, for advancing women’s financial inclusion in Cambodia, Lao PDR, Myanmar, and Viet Nam. The grant size is between USD 100,000 and USD 500,000, covering 50% to 70% of the proposal budget. The application deadline closes on 15 April 2016.
Given the multi-dimensional nature of gender inequality and the obstacles women so often face in accessing markets, SHIFT is also developing collaborative partnerships to connect women-centric interventions in financial markets with complementary markets (i.e. other markets that intersect with and improve the working of financial markets). For example, the SHIFT programme is developing a partnership with the ILO, where SHIFT’s work on cross-border remittances (sent by or received by women) are complemented by ILO’s support to improving pre-departure skills for women migrants or improving decent work standards.
Similarly, SHIFT has established a partnership with Pulse Lab Jakarta, which is a flagship innovation initiative of the United Nations Secretary-General on big data. The partnership will utilize SHIFT’s existing data work combined with Pulse Jakarta’s big data analytics to undertake deeper analysis in terms of financial services usage, particularly women in the region.
#UNCDFExpertsChat: Can you give an example of how SHIFT has made a difference to the lives of poor people and communities?
Feisal Hussein: While the SHIFT programme has only entered into full implementation in mid-2015, it is already making an impact. In October 2015 SHIFT launched its CleanStart Clean Energy Access Window under the fund facility. The window challenged institutions to introduce innovative financial products, approaches and services which facilitate expansion of consumer and/or enterprise financing for low-income consumers, especially women and marginalized groups, who want to transition to cleaner and more efficient energy.
In December 2015, SHIFT - in collaboration with UNCDF’s CleanStart programme - entered into agreement with five institutions, which consist of clean energy companies and financial service providers. Several innovative financing models and energy products have been funded under the CleanStart window and it is estimated that approximately 75,000 households will gain access to financing and clean energy services by 2017.
Additionally, SHIFT supports the incubation of ideas and development of strong business models through its expression of interest and requests for proposals processes. Applicants are engaged in orientation workshops in order to provide guidance on the process and share feedback from the investment committee on the proposed business models.
As a result, SHIFT provides feedback to applicants in order to support the development of strong investment-ready business models. As a result of this process, SHIFT also received feedback from two companies who did not receive grant funding. Despite the fact that the companies did not receive funding they noted that through the grant application process they were able to improve their business models which allowed them to gain recognition and support for their clean energy financing approaches through other means. This approach allows SHIFT’s impact to go beyond its direct investments.
#UNCDFExpertsChat: What are the lessons learned from SHIFT's implementation so far?
Feisal Hussein: Key lessons learned since SHIFT’s full implementation in mid-2015 include the following:
- Bringing about systemic change in markets takes time, and requires intensive engagement with multiple actors that operate across a number of markets that touch the lives of women. In this process, there is a tension between the desire to demonstrate quick results in terms changes in women’s access to finance and real market participation (which is essential to maintain enthusiasm and a sense of accomplishment) with the more sobering reality that removing systemic disadvantage and barriers is a hard slog over several years that require patience. What is needed is to measure direction of travel with mini-milestones based around assumptions and earlier evidence.
- Markets are often in a state of flux and spaces open up in often random ways and times. Understanding the market and the ability to take opportunities when they arise are often powerful ways to bring about change. It is important to create planned opportunities as well as take them even when these are outside existing plans.
- Innovation most often arises when financial market actors collaborate with other private sector actors to build business models for access and economic participation. For example, collaboration between garment factories dominated by women employees and financial institutions can help accelerate the digitization of salary payments, offering an on-ramp for providing a range of other financial services.
#UNCDFExpertsChat: What's the plan for scale up? What can we look forward to in the future of SHIFT?
Feisal Hussein: The Challenge Fund incentivizes and de-risks the development of new or scaled business models. The SHIFT grant is positioned to kick-start and incentivize entry into new markets i.e. low-income segments. However, as the initiative is private sector-led, paired with the organization’s own investments, sustainability is intrinsic to the business model.
Furthermore, SHIFT’s Challenge Fund has been developed to act as a funder’s commons meaning that the fund allows external market players to channel funds both through the SHIFT funding platform and/or directly to SHIFT-funded programmes in the form of grants, loans, equity, debt, quasi-equity, guarantees, etc. This approach allows for funders to strategically channel funding in accordance with their investment objectives and allows the opportunity for SHIFT grantees to access different financing sources to scale their business models further, thus allowing for sustainability beyond the initial investment.
SHIFT is also looking to expand the Challenge Fund to other aspects of the SHIFT programme, through the initiation of a data challenge to incentivize the development of innovative approaches, tools and usage of data, as well as an EdTech challenge, in order to incentivize the development of innovative learning and education tools for financial service providers.
SHIFT is continuously seeking partnerships for engagement in order to scale-up its challenge fund and other data and policy initiatives. Please contact email@example.com, if you would like more information.
#UNCDFExpertsChat: What's exciting about working in this space?
Feisal Hussein: Financial inclusion is cross-cutting across population and sectors. This allows for SHIFT to address a range of issues i.e. clean energy access, women’s economic empowerment, agricultural financing, etc. This allows for SHIFT strategically to pick and choose its areas of intervention based on UNCDF and its partner’s expertise, as well as align activities to address the needs of consumers, particularly women and MSMEs.
Additionally, the programmes focus on innovation allows SHIFT to push the envelope in the financial services market, through co-financing new, unique and impactful business models which have the potential to revolutionize the financial services market in ASEAN.
SHIFT’s approach to data is also unique. SHIFT’s use of Making Access Possible (MAP) data which converges demand-side, supply-side and regulation data/information allows for a comprehensive view of the financial services market at the national level. This, combined with SHIFT’s partnership with Pulse Lab Jakarta, will allow SHIFT to collect and analyse big data from leading CLMV banks. The combination of these data sources will allow for triangulation and a deep understanding of financial gaps, failures, and customer usage in CLMV countries. This sets SHIFT apart in data analysis and allows SHIFT to act as a leader in its data and policy work.